Chinese government bonds yields have jumped to nearly nine-year highs, as the central bank tightens monetary policy.
And the results may not be pretty for the economy.
"If borrowing costs don't fall in time, whether the real economy could bear the burden is a big question," Wendy Chen, an economist at Nomura Securities, told The Wall Street Journal.
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High rates have forced several Chinese development banks, which are supposed to spur investment activity, to curb or postpone borrowing programs.
China's benchmark 10-year government bond yield stood at 4.62 percent Tuesday. It climbed to 4.72 percent last Wednesday, the highest level since January 2005.
"The recent sharp rise in bond yields was mostly due to worsening funding conditions and growing expectations for a tighter monetary policy as Beijing seeks to deleverage the economy," Duan Jihua, deputy general manager at Guohai Securities, told The Journal.
And many experts don't see a let-up anytime soon.
"We expect the central bank to maintain its current tight policy stance in the next few months because of the need to rein in financial risks stemming from local-government debt and shadow banking," Chen said.
China has pledged to further open its markets. But, "here’s the dilemma," writes Robert Samuelson of The Washington Post.
"The old model may not be sustainable, but getting to a new model may be painful. Higher interest rates could bankrupt some firms dependent on cheap credit. A revalued renminbi [yuan] could close some export companies. Stronger consumption might not instantly fill the void."
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